Chapter 8, Problem 8.29P

1

To determine

Compute expected cash collections by completing the table.

Introduction: Budget means the estimation made for the usage of money to decide the amount that executor will need to execute the plan. The budgeting process refers to the process in which future business activity is planned for preparing the way of performing goals by mapping the formal plan.

Answer to Problem 8.29P

Expected cash collected from the month of April is $56,000, May is $67,200, June is $82,800, and quarter is $206,000.

Explanation of Solution

  $Expectedcashsales=Expectedsalesvalue\times 0.6$

  $Expectedcreditsales=Expectedsalesvalueofpreviousmonth\times 0.40$

Compute expected cash collections

Particulars	April	May	June	Quarter
Cash sales	$36,000	$43,200	$54,000	$133,200
Add: credit sales	$20,000	$24,000	$28,800	$72,800
Total sales	$56,000	$67,200	$82,800	$206,000

2

To determine

Compute merchandise purchases budget by completing the table.

Introduction: Budget means the estimation made for the usage of money to decide the amount that executor will need to execute the plan. The budgeting process refers to the process in which future business activity is planned for preparing the way of performing goals by mapping the formal plan.

Answer to Problem 8.29P

Required Purchase for the month of April is $52,200, May is $64,800, June is $42,300, and quarter is $159,300.

Explanation of Solution

  $Costofgoodssold=Expectedsalesvalue\times 0.75$

  $Endingmerchandiseinventory=Followingmonth\cos tofgoodssold\times 0.75$

Particulars	April	May	June	Quarter
Budget cost of goods sold	$45,000	$54,000	$67,500	$166,500
Add: Ending merchandise inventory	$43,200	$54,000	$28,800	$28,800
Total needs	$88,200	$108,000	$96,300	$195,300
Less: Starting merchandise inventory	$36,000	$43,200	$54,000	$36,000
Required purchase	$52,200	$64,800	$42,300	$159,300

If 50% payment is made in current month and remaining 50% is made in following month.

Particulars	April	May	June	Quarter
March purchase	$21,750			$21,750
April purchase	$26,100	$26,100		$52,200
May purchase		$32,400	$32,400	$64,800
June purchase			$21,150	$21,150
Total disbursement	$47,850	$58,500	$53,550	$159,900

3

To determine

Compute cash budget by completing the table.

Introduction: Budget means the estimation made for the usage of money to decide the amount that executor will need to execute the plan. The budgeting process refers to the process in which future business activity is planned for preparing the way of performing goals by mapping the formal plan.

Answer to Problem 8.29P

The ending cash balance of the month April is $4,350, May is $4,590, June is $4,910, and quarter is $4,910.

Explanation of Solution

Particulars	April	May	June	Quarter
Beginning cash balance	$8,000	$4,350	$4,590	$8,000
Add: Collections from customers	$56,000	$67,200	$82,800	$206,000
Total cash available	$64,000	$71,550	$87,390	$214,000
Less: Cash disbursements
For inventory	$47,850	$58,500	$53,550	$159,900
For expenses	$13,300	$15,460	$18,700	$47,460
For equipment	$1,500	-	-	$1,500
Total cash disbursements	$62,650	$73,960	$72,250	$208,860
Excess of cash available over disbursements	$1,350	($2,410	$15,140	$5,140
Borrowings	$3,000	$7,000	-	$10,000
Repayments	-	-	($10,000)	($10,000)
Interest	-	-	($230)	($230)
Total financing	$3,000	$7,000	($10,230)	($230)
Ending cash balance	$4,350	$4,590	$4,910	$4,910

4

To determine

Prepare absorption costing income statement.

Introduction: Budget means the estimation made for the usage of money to decide the amount that executor will need to execute the plan. The budgeting process refers to the process in which future business activity is planned for preparing the way of performing goals by mapping the formal plan.

Answer to Problem 8.29P

Income statement shows net income of $5,110.

Explanation of Solution

Computation of Income Statements:

Particulars	Amount	Amount
Sales ($60,000+$72,000+$90,000)		$222,000
Cost of goods sold:
Beginning inventory	$36,000
Purchases	$159,300
Goods available for sales	$195,300
Ending inventory	$28,800	$166,500
Gross margin		$55,500
Selling and Administrative expenses:
Commission (12% of sales)	$26,640
Rent($\$2,500\times 3$)	$7,500
Depreciation($\$900\times 3$)	$2,700
Other expenses(6% of sales)	$13,320	$50,160
Net operating income		$5,340
Less: Interest Expenses		$230
Net income		$5,110

5

To determine

Prepare balance sheet as of June 30.

Introduction: Budget means the estimation made for the usage of money to decide the amount that executor will need to execute the plan. The budgeting process refers to the process in which future business activity is planned for preparing the way of performing goals by mapping the formal plan.

Answer to Problem 8.29P

Balance sheet has balance of assets and liabilities of $188,510.

Explanation of Solution

Particulars	Amount (in $)
Assets
Current Assets:
Cash	$4,910
Accounts receivable ($90,000×40%)	$36,000
Inventory	$28,800
Total current asset	$69,710
Building and equipment	$118,800
Total asset	$188,510
Liabilities and stockholder’s equity
Current liabilities
Accounts payable	$21,150
Stockholder’s equity:
Stockholder’s equity	$167,360
Total liabilities and stockholder’s equity	$188,510

Working notes:

  $\begin{array}{l}Stockholder\text{'}sequity=commonstock+retainedearning\\ Stockholder\text{'}sequity=\$150,000+\$17,360\\ Stockholder\text{'}sequity=\$167,360\end{array}$